Our Attorneys’ Fees: 33.3%/40%

Personal injury lawyers hate talking about their contingency fee agreements with their clients. Me too. But, it is an interesting and important topic, and one that is of great importance to people who are seriously injured and will be hiring at attorney. This post explains how our law firm operates and gives a few thoughts on contingency fee agreements in personal injury cases.

Our contingency fee agreement with our clients in every person injury case is exactly the same. Our firm gets one-third of the recovery if the case settles before a lawsuit is filed. If a lawsuit is filed, or there is an agreement to arbitrate the case, our fee increases to 40%. We have fronted all client expenses in every case we have handled in the last 10 years. If we are not willing to put up our own money, we would not be willing to take the case.

This is our agreement in every single personal injury case in our office. We have turned down at least two cases (that I know of; I’m sure there have been more) that have culminated in a seven figure recovery because we did not agree to reduce our contingency fee.

Before I explain why we do it this way, let me go the other way and set forth the argument why we shouldn’t have a set fee for all of our clients. Contingency fees in personal injury cases are designed to a large measure to compensate attorneys for the risk in time and money they must incur. So, theoretically, in a world of perfect information, you should calibrate the contingency fee with the risk/reward and set the attorneys’ fees accordingly. [This is the short version; you can find the long version here.]

There are a lot of problems with this. First, I don’t really know the value or the risks that are going to come with a case when it comes in. Our best cases often don’t appear to be cases when they walk though the door. My partner once gave me a lecture – a long “you need to change your approach” lecture – about a case I accepted and stuck her with that we never should have taken. The jury awarded our client over one million dollars. Conversely, we get so many cases – particularly medical malpractice cases – that are slam dunk winners until you start spending the time and money to peel the onion to find out what really happened. We have spent hundreds of thousands of dollars on easy pickings cases that – lo and behold – were only easy picking for the defense lawyers (if it even got that far).

Moreover, I don’t like sitting on an airplane next to a guy who paid half for his ticket what I paid. I like the fairness of being able to say, I’m charging you the same fee that we are charging every single other client.

I like that we are not negotiating with our clients about our attorneys’ fees. If I am negotiating a fee with a client, it seems adversarial. That’s not how I want to start off our relationship. Remember, they don’t have to come to our firm. I tell clients there are always law firms out there that are going to cut fees to get cases. The client needs to compare the attorneys and decide whether the lawyer with the lower contingency fee is going to put more money in their pocket at the end of the proverbial day. That is the ultimate issue for seriously injured clients: what is the best path to get as much money as possible for what they have gone through?

There are a few caveats here. First, I’ve been writing for years that there are many accident cases – most notably, soft tissue injury cases – where clients are often better served (or at least close to equally served) statistically without hiring a lawyer. Second, there are some cases that so clearly on their face are going to be “insurance company is going to pay the policy limits on this case” and there is really not much of value that we are going to add. This is not true in every case where you think the policy limits will certainly be offered. In these cases, the clients just don’t need a contingency fee lawyer and should hire someone hourly. We have turned down scores and scores of great personal injury cases where we could have weaseled in and scored a nice payday, but didn’t because we would not be able to truly justify our attorneys’ fees.

If you have an opinion on this, or thoughts on how your firm handles contingency fee agreements, leave a comment.

As a client, I would expect such fees to be based on the NET recovery after expenses

Ron Miller

That is not the first time I have heard that. But I have never heard of a single personal injury lawyer who does this. It sets up crazy conflict problems that I don’t think would benefit the client.

If you handle personal injury cases and this is your practice, leave a comment and give your thoughts.

Avenger

You’re right Ron, none of them do this routinely because most of their clients don’t pay much attention to the contingency contracts they’ve signed. Those few cases where I have recommended a Bodily Injury attorney to a friend, I’ve always recommended that they object to fees on the gross recovery and they’ve always gotten counsel to take the fee based on the the net recovery. Of course the counsel I’ve recommended to my friends aren’t the ones that advertise on television and stick magnets on the covers of the Yellow Pages

Ron Miller

Dennis, could you please send me (1) a redacted copy of the free agreement for one of those cases and (2) how much the case settled for?

I want to find one lawyer handling a serious injury case who is reducing costs in their fees. I’m not saying there are not lawyers out there doing it. But I have never seen such an agreement and never heard of a single lawyer who was willing to include fees.

This cuts both ways, by the way. I have also never heard of a defense firm who is willing to pay for expenses out of their fees. Again, the conflict of interest at that point would be just unbelievable.

I think the opposite is true actually: if any lawyers are offering this deal it is probably because they know they are going to settle the case because they settle all of their cases.

Kevin

No serious lawyer who is willing to take a case to trial is willing to pick up expenses. There is an expert in London who will only come to trial if he is flown in by private jet? We have to go get him.

I doubt whether a single PI lawyer in the country who actually tries cases has ever agreed to this. Because if this was their SOP, they would not be in business very long.

Avenger

Who said anything about the attorney picking up the expenses ? I guess literacy among the readers of legal blogs is no better than elsewhere
I’ll give you a simple example using round numbers for illustrative purposes only. In both cases we will assume a $1M gross recovery and $200K in expenses
A) 40% fee on the gross
$1,000,000
contingency fee
expenses
net to client $400,000
B) 40% fee on the net
$1,000,000
expenses
contingency fee (800,000 x.40)

net to client $480,000
***
Since the personal injury bar professes to be interested in “justice for their clients”, I find it odd that in so many cases that I have seen, the contingency and expenses eat up the recovery leaving the client little or nothing.

I don’t expect anyone to work for free but I’ve seen many, many clients of the bodily injury bar who would have netted far more money, if they had dispensed with their counsel and simply negotiated with the putative tort-feasor directly.

Ron Miller

Actually, Dennis, I was not sure which way you meant it. I thought you might mean it the way that Kevin interpreted it. Because I think this way is even more foolhardy, actually.

One big problem with personal injury lawyers fronting and risking expenses is that too many are cheapskates and fear risk. So they don’t throw the money into a case like they should. This is going to encourage them to throw nickels around like manholes covers when they are already having a hard time pulling dimes out of their pockets.

Why do something so convoluted? If the client and the lawyer agree the fees should be lower than reduce the fees. Don’t create bigger conflict problems between lawyer and client than the ones that already inherently exist.

Don’t you agree that if want to lower fees, the key is just to lower the contingency?

Avenger

Convoluted ?? THis is simplicity itself.

Actually, many contingency fee attorneys routinely sell out their clients, once the settlement offer is high enough that they can make a decent fee – whether or not they advanced expenses.

At one time (back in the 1990s) I handled private passenger auto claims for a major insurer, and I was appalled at the lack of professionalism in the bodily injury bar. I received a number of calls from represented clients (after the fact) bemoaning that they netted less after retaining counsel than if they had accepted the last offer I made them before they sought counsel.

Kevin

You are an adjuster? Why didn’t you just say that up front. Now it all makes sense. You should have titled your post: “Bitter Chronicles from My Cubical.”

Again, really this is a bad idea. You are not addressing any of the concerns that I raised or that Ron raised. Your idea seems to be the lawyers should reduce their fees but X amount off of expenses. I think lawyers should charge whatever they want but be open and honest about it.

You think this interlocking the fees and expenses idea is very clever but really it sets back transparency. It also fails to align the client’s interests and the lawyer’s interest. Now, clients have to get an idea of what the fees are they have to estimate future expense to compare lawyers fees. Now you are really looking at comparing apples to oranges. You may as well have the fee reduction be based on the day the temperature outside on the day the case resolves. It is just not accomplishing what you want to accomplish.

Ron is right: The most logical – the only logical approach that I can think of – to accomplish what you are looking to do equitably is to simply have the lawyer reduce their fee by reducing the contingency fee percentage. I think lawyer that cut their fees are idiots but they are certainly entitled to do it.

Ron Miller

I love when people disagree with me have comments, PARTICULARLY current and former defense lawyers and adjusters. But I’m going to delete all of these comments because I’m not a huge fan of the tone on these.

I do think make expenses a part of fees exacerbates the problem of lawyers not putting enough money into their cases. From where you are sitting, Dennis, you probably think lawyer run up expenses. But in the real world the opposite is true: they won’t spend what it takes to put on the best case. And your plan would make this problem worse, in my opinion.

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